The rule that stopped individual landlords deducting mortgage interest as an ordinary business expense. Instead you receive a basic-rate tax reduction worth 20% of your finance costs, applied after your tax is calculated. The practical effect is that your taxable rental profit is worked out as though the interest was never paid, which inflates your reported income, can push you into a higher tax band and can trigger other thresholds. For a higher-rate taxpayer with substantial borrowing, that means paying tax on money the lender has already taken.

Why am I paying tax when the rental barely breaks even?

Because your full rental income is taxed with only a 20% credit for the interest, rather than the interest being deducted before tax. Take £30,000 of rent, £20,000 of mortgage interest and £3,000 of other costs. Before Section 24 you were taxed on £7,000. Now you are taxed on £27,000 and receive a £4,000 credit. For a landlord whose other income already fills the basic rate band, that is £10,800 of tax less £4,000, or £6,800, against real cash profit of £7,000. The property is barely earning anything and the tax is nearly all of it.

Does it affect limited companies?

Not in the same way. A company deducts mortgage interest against rental profits as a normal expense and pays Corporation Tax on what is left, which is why incorporation is discussed so often. Two counterweights, though. Company buy-to-let mortgages are typically more expensive, which erodes part of the benefit. And extracting the profit to yourself personally brings a second layer of tax, so the comparison is only genuinely favourable where the money stays in the company to fund further purchases.

Should I move my properties into a company?

Only after running the numbers, because the entry cost is substantial. Transferring property you already own is a disposal at market value: it can trigger Capital Gains Tax on the growth to date and Stamp Duty at the higher additional-property rates on the way in, plus early repayment charges on existing mortgages. Broadly it favours larger, geared, growing portfolios where profits are retained; it goes badly for one or two properties with big latent gains. Buying the next property through a company is a far easier decision than moving the last one.

What else can I do about it?

The unglamorous options usually beat the dramatic one. Where a spouse pays a lower rate, holding as tenants in common in unequal shares with a Form 17 declaration can shift income into their band — but Form 17 only applies from the date it is submitted, so it cannot be done retrospectively. Reducing borrowing directly reduces the disallowed interest. Making pension contributions lowers adjusted net income and can pull you back below a threshold. And check that all genuinely allowable costs are being claimed, because plenty are quietly missed.

Does it apply to furnished holiday lets?

The furnished holiday letting regime, which previously allowed full interest deduction among other advantages, was abolished from April 2025. Properties that qualified are now treated under the standard property income rules, which means Section 24 restrictions apply to their finance costs too. If your planning was built around FHL status — the interest deduction, capital allowances or the capital gains reliefs — that planning needs revisiting rather than assuming continuity. Several landlords have not yet noticed the change, and the first sign is usually an unexpectedly large tax bill.

Section 24 and landlord mortgage interest relief

If you're an individual landlord with a mortgage, Section 24 is the tax change that quietly reshaped the numbers on buy-to-let — and a lot of landlords still don't fully realise how it affects them. Here's what changed, the arithmetic worked through in full, the knock-on effects on Child Benefit and your Personal Allowance, and what actually helps.

What Section 24 changed

It used to be that landlords could deduct their mortgage interest as a straightforward expense before working out their taxable rental profit. Section 24 removed that. Individual landlords can no longer deduct finance costs — mortgage interest, interest on loans to buy furnishings, and the incidental costs of getting that finance — from rental income in the normal way. Instead you get a basic rate tax reduction worth 20% of your finance costs, applied at the end of the calculation once your tax has already been worked out. The restriction was phased in from April 2017 and has been fully in force since April 2020.

The detail that matters, and that most summaries skip: the reduction is 20% of the lowest of three figures.

Your finance costs for the year, plus any unused finance costs carried forward from earlier years.
Your property business profits — the taxable profit after all other expenses.
Your adjusted total income — your income above the Personal Allowance, excluding savings and dividend income.

Where the property profits or adjusted total income figure is the lowest, the difference between it and your finance costs is carried forward to be used in a later year. Nothing is lost permanently, but relief can be deferred for years in a portfolio that is heavily geared or making losses.

Why it stings for higher-rate taxpayers

For a basic rate taxpayer, the 20% reduction matches the relief the old deduction gave, so the direct impact is limited. The problem is that your gross rental income now inflates your total income. That does two things: it taxes you on "profit" the lender has already taken, and it can push you across thresholds you were previously below.

For the 2026/27 tax year, the Personal Allowance is £12,570, the basic rate of 20% runs to £50,270, the higher rate of 40% runs to £125,140, and the additional rate of 45% applies above that.

Worked example: a landlord earning £48,000, one rental property

Illustrative figures, but the tax arithmetic is exact. An employed landlord earns £48,000 in salary. Their rental property produces £30,000 of rent, with £20,000 of mortgage interest and £3,000 of other allowable costs — insurance, letting agent fees, repairs. In cash, the property makes £7,000 a year.

Property business profit for tax: £30,000 less £3,000 = £27,000. The interest is not deducted.
Total income: £48,000 + £27,000 = £75,000. Taxable income after the Personal Allowance is £62,430.
Tax before the reduction: £37,700 at 20% = £7,540, plus £24,730 at 40% = £9,892. Total £17,432.
Basic rate reduction: the lowest of finance costs (£20,000), property profits (£27,000) and adjusted total income (£62,430) is £20,000. The reduction is 20% of that = £4,000.
Tax due: £17,432 less £4,000 = £13,432.

Now isolate the property. Tax on the £48,000 salary alone would be £7,086. So the property has added £6,346 of tax to a rental that generated £7,000 of cash. That is 91% of the cash profit gone in tax, and it is a property most people would describe as doing fine.

Under the old rules the taxable profit would have been £7,000, total income £55,000, and the tax bill £9,432 — £4,000 less. The £4,000 gap is Section 24 in a single number, and it grows with the size of the mortgage.

Worked example: when the reduction is capped and relief is deferred

Same landlord, a year with a big repair. Rent £30,000, mortgage interest £24,000, other allowable costs £9,000. Property business profit is £21,000. The lowest of the three figures is now the property profit of £21,000, not the £24,000 of finance costs — so the reduction is 20% of £21,000, or £4,200, rather than £4,800. The unused £3,000 of finance costs is carried forward to next year's calculation. You have not lost the relief, but you have waited a year for £600 of it.

The thresholds it pushes you across

This is the part landlords are most often blindsided by, because it has nothing to do with the rental income itself.

The High Income Child Benefit Charge starts at £60,000 of adjusted net income and takes back 1% of Child Benefit for every £200 above it, with the whole amount clawed back at £80,000. Take a landlord on £55,000 of salary with the £27,000 taxable property profit from the example above: adjusted net income of £82,000 means all the Child Benefit goes back. Under the old rules the profit would have been £7,000, adjusted net income £62,000, and only 10% would have been repayable.
The Personal Allowance taper removes £1 of allowance for every £2 of adjusted net income over £100,000, wiping it out entirely at £125,140 and producing an effective 60% rate in that band. Gross rents count towards it; the mortgage interest does not reduce it.

Who it affects — and who it doesn't

Section 24 applies to individual landlords of residential property with finance costs, including partnerships and trusts holding residential property. It does not apply to companies: a company deducts mortgage interest against its rental profits as an ordinary expense and pays Corporation Tax on what is left — 19% on profits up to £50,000, 25% above £250,000, with Marginal Relief between. That gap is the main reason incorporation gets discussed so often.

One group lost their exemption recently. The furnished holiday lettings regime, which allowed full interest deduction, was abolished from 6 April 2025 for Income Tax and Capital Gains Tax, and 1 April 2025 for Corporation Tax. Former FHL properties now sit under the ordinary property rules, so Section 24 restricts their finance costs too. If your planning was built on FHL status, it needs revisiting rather than assuming continuity.

Five things to check before your next return

Work out your adjusted net income including gross rents. If it lands between £60,000 and £80,000, or between £100,000 and £125,140, the marginal cost of the next pound of rent is much higher than the headline rate suggests.
Check whether any finance costs have been carried forward. They appear where the reduction was capped by property profits or adjusted total income, and they are easy to lose track of between accountants.
Review ownership between spouses. Where one spouse pays a lower rate, holding as tenants in common in unequal shares with a Form 17 declaration can shift income into the lower band. Form 17 applies only from the date it is submitted, so it cannot be backdated — the sooner it goes in, the sooner it counts.
Consider a pension contribution. A personal contribution reduces adjusted net income pound for pound, which is often the cheapest way to get back under the £60,000 or £100,000 line. Buzz is an accountancy practice, not an FCA-authorised firm; regulated pension and investment advice comes from Equity & General, FCA No. 474163.
Check every allowable cost is actually being claimed. Replacement of domestic items relief, professional fees, mileage to the property and the finance-related costs that still qualify are all routinely missed. Our note on what landlords can and cannot claim covers the ones we see left off most often.

Incorporation: the option everyone asks about

Moving existing property into a company is a disposal at market value, not a transfer of paperwork. Capital Gains Tax applies to the growth to date at 18% within the basic rate band and 24% above it, with an annual exempt amount of £3,000 for 2026/27. Stamp Duty Land Tax is charged on the way in, including the 5% surcharge on additional residential properties. Add early repayment charges on existing mortgages and typically higher rates on company buy-to-let borrowing, and the entry cost is often five figures before any saving starts.

Broadly, incorporation favours larger, geared, growing portfolios where profits are retained in the company to fund the next purchase. It goes badly for one or two properties with big latent gains, and for anyone who needs to draw the profit personally — that second layer of tax on extraction erodes much of the advantage. Buying the next property through a company is a far easier decision than moving the last one. Our capital gains calculator gives you a first-pass number on what a transfer would trigger.

Get your position modelled properly

Section 24 is exactly the kind of thing where proper advice pays for itself, because the right answer depends on your income, your portfolio and your plans rather than on a general rule. We help landlords understand their real after-tax position and weigh the options without the sales pitch. The full landlord tax guide walks through the wider picture, our tax planning page explains how we work, and if Section 24 is biting, a conversation is the sensible next step.

Section 24: what the mortgage interest changes mean for landlords